Nashville’s Multifamily Prosperity Plays On

Matt Olson, Vice President, Freeman Webb. Image courtesy of Freeman Webb

The increasing number of young professionals relocating to the Music City and surrounding areas is creating exceptional demand and keeping occupancy near historic highs due to low supply. Yardi Matrix data shows that the occupancy rate in the metro was 96.4 percent as of March—170 basis points above the March 2021 figure.

“We anticipate another year of elevated rent growth as the demand and supply equation has not changed,” Freeman Web Vice President Matt Olson told Multi-Housing News. “In fact, rising interest rates and inflated single-family home prices have created even greater demand for apartments.”

Freeman Webb, an owner and operator based in Nashville, executed one-quarter billion dollars worth of transactions in 2021 and is on track for another record year. In the interview below, Olson explains why Nashville’s multifamily market is still in the early stages of growth and reveals his company’s strategy for the area.

READ ASLO: Nashville Goes From Hot to Red-Hot

How would you describe metro Nashville’s multifamily market today? 

Olson: The Nashville multifamily market is red hot. We are experiencing unprecedented demand from renters, resulting in all-time high occupancy rates and double-digit, year-over-year rent growth. The strong multifamily fundamentals, coupled with the overall economic growth of Nashville, has also resulted in unprecedented investment demand and development. We had more than $4.5 billion in multifamily transactions in Nashville during 2021, which is more than double the volume from the previous peak of $1.8 billion in 2018. That investment demand is not slowing as we are on pace for approximately $3 billion in transactions through the first half of 2022. 

So you’d say that now is a good time to be a property owner and investor in Nashville? 

Olson: Yes. The city has changed significantly over the last decade, but Nashville is still in the early stages of growth. We have not fully experienced the impact of Amazon’s presence in our market, let alone the impact of Oracle’s additional jobs and investment in our community. We have very business-friendly leadership at the state and local levels that will continue to attract employers and those leaders are prudently working to accommodate the growth with billions of dollars of investments throughout the city, including our airport. The continued growth of Nashville will benefit property owners of all asset classes, especially multifamily owners. 

What does this metro have to offer to young professionals looking to relocate?

Olson: Nashville offers a great quality of life, with many of the amenities that young professionals seek—major sports teams, good food scene, diverse nightlife and culture—while being more affordable and convenient than many other large metros. That quality of life, coupled with good-paying jobs across a number of industries—including health care, automotive, music, education, financial services and tech—draws a variety of talent across all professions. We boast that about 110 people move to Nashville each day, and we don’t anticipate that growth to slow any time soon. 

Which areas of the metro are the most sought-after?

Olson: The urban neighborhoods such as The Gulch, Germantown, the Nations and East Nashville are some of the hottest neighborhoods for young professionals as these communities offer walkability, shopping, good restaurants and bars. However, all of the Nashville submarkets and Middle Tennessee are experiencing tremendous growth. Suburban communities like Franklin, Murfreesboro and Hendersonville are attracting families with their strong school systems and growing amenities.

Tell us about some of the most notable multifamily deals you closed in 2021.

Olson: Our 2021 transaction volume was solely multifamily transactions. We sold four communities during the second half of the year, including two properties in Nashville: one in East Tennessee and one in Huntsville, Ala. These were strategic dispositions to prune our portfolio of smaller or older assets, while also providing our investors with returns ranging from four to 12 times equity multiples.

The Emerson Apartments in Bowling Green, Ky., one of the company’s latest acquisitions. Freeman Webb intends to turn the student housing community into market-rate apartments.

We also acquired two properties during the year: a 150-unit community in Knoxville, Tenn., and a failed student housing property in Bowling Green, Ky. We are in the process of converting the student housing property into a conventional market-rate community, which includes dividing the four-bedroom units into two separate one-bedroom or two-bedroom units and thereby increasing the unit count by more than 100 units.

This was a unique opportunity to reposition an early 2000s asset, increase our density and have an all-in basis under $100,000 per unit, well below replacement costs and where comparable properties are trading.

What type of communities are you targeting this year? 

Olson: We are a vertically integrated company with an in-house general contractor and construction team, which allows us to efficiently execute value-add renovations of communities. That has been our investment model and specialty for more than 40 years. Our team has earned regional and national recognition for our renovations, including MHN’ 2021 Excellence Award for the value-add renovation of Madison Landing Apartments in Huntsville.

However, given the current pricing of multifamily properties and elevated interest rates, we have been more heavily targeting core-plus assets in high growth markets. We believe these communities offer the greatest risk-adjusted returns. As far as specific markets, we continue to be bullish on the Southeast, especially submarkets throughout Middle Tennessee.

Rising inflation and labor shortage are also top concerns for most multifamily players today. Is there anything else that you are closely monitoring?

Olson: Inflation and labor issues are definitely top concerns impacting our property operations, and there does not appear to be any near-term relief. Multifamily assets will perform well against inflation given the shorter-term leases that are constantly rolling. Our strong supplier relationships and well capitalized investments have allowed us to weather the rising material costs thus far. Beyond the operational difficulties, we are closely monitoring the national economy and interest rates.